Thursday, 31 July 2014

Sixteen months after the sensational arrest in Italy
of Finmeccanica chief executive, Giuseppe Orsi, on charges of bribing Indian
officials to facilitate the sale of twelve AW-101 VVIP helicopters to the
Indian Air Force (IAF), the Italian prosecutors who were investigating the case
have dropped charges against the Italian defence conglomerate.

Jolted by that arrest, India’s ministry of defence
(MoD) had unilaterally suspended the Euro 556 million (Rs 4,480 crore)
helicopter contract with Finmeccanica subsidiary, AgustaWestland. It was
formally terminated on New Year’s day.

Now, with the Italian probe closed, the MoD must rely
on an on-going investigation by the Central Bureau of Investigation (CBI) that
has shown little progress so far.

After the MoD handed over the case to the CBI, the
agency took just days to file a First Information Report (FIR) against former
IAF boss, Air Chief Marshal SP Tyagi, and 12 others, alleging cheating and
criminal conspiracy. The accused denied all charges against them.

Since that initial FIR in Mar 2013, the CBI has filed
no further reports or even a chargesheet. The CBI has interviewed Tyagi once,
as well as three former civil servants who later became state governors ---
former national security advisor, MK Narayanan; former Special Protection Group
(SPG) chief, BV Wanchoo; and former Intelligence Bureau chief, ESL Narasimhan.

The CBI is determined to pursue its investigation, though
it has relied heavily on investigations by Italian prosecutors. “It is a
complicated case; but our investigations are at an advanced stage”, insists CBI
spokesperson, Kanchan Prasad.

Off-the-record, MoD officials claim “clear evidence”
that AgustaWestland violated an “integrity clause” in the contract, which
prohibits the employment of middlemen or agents to facilitate the deal. The
Italian investigation centred on three alleged middlemen --- Guido Haschke;
Christian Michel and Carlo Gerosa --- who allegedly bribed key Indian
decision-makers.

The latest developments were promulgated on the
Finmeccanica website on Tuesday evening, which stated: “Finmeccanica announces that the Italian Prosecutor has discontinued
investigations relating to the contract for 12 AW101 VVIP helicopters signed
with the Indian Ministry of Defence in 2010.”

The statement admitted that Finmeccanica
would pay a “negligible fine”, but this was “not in any way an admission of any
wrongdoing or liability” by the company.

As part of the arrangement, says
Finmeccanica, “The (Italian) Prosecutor specifically acknowledged the
non-involvement of Finmeccanica in the alleged wrongdoing, recognizing that
that since 2003, Finmeccanica has implemented – and regularly updated – an organizational,
management and audit model, sufficient to prevent unlawful conduct, whilst
ensuring that significant attention is given to compliance processes in order
to uphold the adequate standards of ethics and appropriate conduct.”

Since the contract was suspended, the
MoD and AgustaWestland have remained in a standoff, with three VVIP helicopters
having already been delivered to India, and several more ready for delivery.
The MoD has encashed bank guarantees worth about Rs 2,200 crore that had been
provided by AgustaWestland.

Yet, the Italian helicopter giant has signalled
that it would confront India’s MoD legally to protect its reputation. On Oct 4, 2013, AgustaWestland invoked
arbitration under the Indian Arbitration and Conciliation Act, 1996. The MoD stated
on Nov 26 that it would not accept arbitration, but then nominated an
arbitrator on Jan 1, when it terminated the contract. A third, neutral,
arbitrator must be appointed by mutual consent.

At the heart of the allegations against AgustaWestland
was a change in specifications that allowed the AW-101 to be eligible for purchase.
The IAF’s first tender (in 2002) demanded a helicopter that could operate at
altitudes of up to 6000 metres. After just one helicopter qualified (the EC-225
Eurocopter) the National Democratic Alliance (NDA) government began a
process of reconsideration in Nov 2003 that eventually led to another tender in
Sept 2006, which diluted the requirement to 4500 metres.

A MoD fact sheet, issued on Feb 15, 2013, points out
that the decision involved both the NDA and the UPA governments, and two IAF
chiefs --- including Air Chief Marshal S Krishnaswamy who preceded Tyagi.

The fact sheet says: “The
procurement case was, thus, progressed in accordance with the established
procurement procedure in a transparent manner with all stages of procurement
being followed meticulously.”

It remains unclear then what violation the CBI
investigation seeks to unearth.